Value Based Pricing: Benefits and Applications

Gain the necessary knowledge to price construction work based upon value, rather than cost and competition.

Construction contractors have experienced significant fee erosion since the 2000s. Contractors have been compelled to decrease their fees by competition and owners who want the bottom dollar. Fee erosion encourages contractors to cut corners, over-price changes, and in some cases use creative accounting practices to enhance their eroded fees. Such practices can leave contractors one project away from financial ruin, and dissatisfied owners. This information will show you a better way of pricing construction work. Rather than pricing work based on the lowest cost to meet the specifications, and competing for the lowest fee, contractors can effectively market their services by offering to price their services based on the value the owner expects to receive from the completed project. Value-based pricing will help contractors make a fair profit and leave owners more satisfied that they are getting the value represented by the contract price. Other businesses have been using value-based pricing for years. The construction industry can follow their lead, effectively using value-based pricing for both negotiated contracts and competitively bid projects. Failing to utilize value-based pricing will result in continued fee erosion and the aftereffects a low fee has on a construction project. This information will provide architects, engineers, contractors, subcontractors, suppliers, local and state government administrators, attorneys, and others who are either in or do business with those in the construction industry with the necessary knowledge to price construction work based on value, rather than cost and competition, to promote a win-win outcome between owners and contractors. This information is critical to anyone who contracts for construction work.

Faculty

Scott D. Cahalan

Smith, Gambrell & Russell, LLP